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Friday, November 5, 2010

The American Thinker on Free Trade Again

I really enjoyed this post. The author puts objections to free trade into a small, well-managed space. You really ought to go read the whole thing, but since I know you're not actually like to do so, here's a sample, with my comments interspersed:
Free trade sounds nice. Protectionism sounds ugly. Free trade sounds capitalist. Protectionism sounds Marxist. So it is worthy of note that free trade was actually viewed by Karl Marx as a strategic force, a tool with which to undermine capitalism as an economic model:
But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen that I vote in favor of free trade [i].
Marx was not far from wrong. After nearly fifty years of progressive tariff reductions, America has suffered significant economic losses. This comes as a surprise to many Americans, for years inebriated with the free trade mantra.

This is because America does the "free" while the rest of the world does something else. China, for example, manipulates its currency and engages in persistent dumping, driving down Chinese prices and displacing domestic American industries.
Amen, and amen! There are few things that annoy me more than listening to or reading someone extol the benefits of free trade without so much as noticing the elephant in the room: free trade does not actually exist! Other nations protect their markets.
The results of such one-sided free trade have been catastrophic for America. Consider that in the last fifty years, U.S. tariffs have gone from 40 percent of the price of goods to 5 percent [iv]. Over the same period, manufacturing as a share of employment has fallen from 30 percent to 11 percent and is still falling.
I swear, as God is my witness, every free trade economist that I have read writes as though any idiot can do manufacturing, or as if it is somehow a low-class form of employment.

My ***. Look, I've done manufacturing. I rather like it. I started at one factory by running a large set of industrial sheet-metal shears, then operating a CNC laser cutter, then moving on to a machine shop where I spent my days operating CNC mills and lathes and my nights learning more about how it's done. When I was laid off and moved into other fields, I wasn't even close to being a full-fledged machinist, despite having been in the field for close to two years and going to school for most of that time. It takes time, time and experience, to be a good manufacturing employee. Oh, anybody, or almost anybody, can drive a small forklift, to be sure, but to be a machinist? A fab (fabrication) worker? A welder? A tool-and-die maker? Those guys don't just fall off the trees. When we lose manufacturing jobs, those guys eventually have to move on to something else. Their skills deteriorate, and for the most part, are lost to the country.

God forbid we should have to rebuild our manufacturing in a big-*** hurry. I'm not sure we could do it.
The late Milton Friedman was a committed free trade proponent. In a stunning dismissal of traditional economic theory, Friedman once remarked, "Who is hurt and who benefits ... U.S. consumers benefit. They get cheap TV sets or automobiles ... Should we complain about such a program of reverse foreign aid?"

That may sound good for the short-term, but, as classic economist Friedrich List wrote,
The forces of production are the tree on which wealth grows...The tree which bears the fruit is of itself of greater value than the fruit itself...The prosperity of a nation is not...greater in the proportion in which it has amassed more wealth (i.e. values of exchange), but in the proportion with which it has more developed its powers of production.
Manufacturing matters. Service jobs, the primary source of U.S. employment, depend on capital inputs from manufacturing even if said manufacturing is foreign. This presents problems should foreign manufacturing undergo shocks or disturbances that disrupt supply lines and, by extension, the sole source of employment for most Americans. Dependence on foreign manufacturing is inherently dangerous, since it is out of U.S. control.

The loss of manufacturing is not a trivial matter, and it has national security implications. It must be the ultimate oxymoron that Communist China is now the "arsenal of democracy." China is a strategic enemy and has threatened open nuclear war on America's homeland, and yet CFIUS has cleared the sale of factories to China responsible for producing the rare-earth magnets used in American laser-guided munitions. What happens if America ever needs to fight China?
Or, what if, God forbid, America ever needs to fight some country with which China is at all friendly?
Service economies can't issue ultimatums; only industrial economies can do that.

It is on this basis that free trade arguments fall apart. In a world with no nations, where national governments are not accountable for the economic and political security of their people, doctrines like "comparative advantage" would have validity.
Again, amen, and amen! As long as nations exist, trade wars will be just that--trade wars. And nations that refuse to protect their own people are derelict in their duties.
Refusing to protect the American economy when other nations are using manipulative "protectionist" devices is not competition, but economic suicide.

Free trade cannot work when some play by the rules and others do not. While competition and openness are desirable in ideal circumstances, reasonable protectionism has proven effective and is indeed necessary to preserve American economic strength.
This whole subject is one of the things that genuinely concerns me about the crop of "conservatives" that we are about to send to Congress. I flatly guarantee you that the vast majority of them know next to nothing about this subject and will back free trade most of the time because, if they have heard anything about it at all, they have heard it from the open-borders/free trade/free-movement-of-goods-and-people, libertarian-leaning economists that dominate most of the economic discussion in the Republican Party. You would not believe the number of "conservative" writers who pen such inanities as "free trade is a bedrock conservative principle," when it is no such thing. It might well be a bedrock libertarian principle, but whilst libertarianism and conservatism do have their areas of overlap, they are not the same thing. It is sheer idiocy to tell a nation that grew to greatness, in part, by protecting its markets, that doing the opposite is somehow "conservative," yet we have more than a few conservatives who will do just that. It's mind-boggling.

Lastly, I must point out--again--that yes, I'm aware that tariffs are not perfect and do have their flaws and negative effects. Personally, I favor the Fair Tax, which, like a tariff, is a consumption tax and will have much the same effect as a tariff, though it is likely to eliminate some of the negative effects associated with tariffs. However, if I can't get the Fair Tax, bringing back tariffs, coupled with a great lowering of income tax rates, would be something I completely support.

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